Need painful reform? post-communist Europe knows how it’s done

Lessons for modernisers like Macron on how to remake jobs, taxes and welfare

What a difference a year makes. In January 2016, I was telling a young and dynamic minister of economy of France at an innovation event in Davos how much I admire his drive to reform the French economy, writes Martin Bruncko. And how much I understand how difficult such a task is, having been myself a part of a small group of people that delivered comprehensive structural reforms in Slovakia in mid-2000s, including a fundamental tax reform, pension reform, labor reform and social welfare reform. When I mentioned to him the famous quip of Jean-Claude Juncker, the president of the European Commission – ‘We all know what to do [in terms of economic reforms], we just don’t know how to get re-elected once we’ve done it’ – he smiled and said with his characteristic charm: ‘It’s a good thing then that I’ve never tried to run for an elected office.’

Today, this very same man, Emmanuel Macron, is the president of France. Moreover, he is backed by an overwhelming parliamentary majority of his own party that swept to power with him on a message of optimism and can-do attitude. If he successfully delivers required reforms, he can usher a new dawn of prosperity for France and Europe. Judging from his previous efforts and public comments, he seems to know what to do. But how should he do it in a way that will defy the ‘Juncker paradox’? The experience from our reform drive in Slovakia may offer a few suggestions.

First, his message needs to remain aspirational. Hope was the key reason why the people in most post-communist countries tolerated very painful economic changes pushed by their politicians. Their citizens believed that the pain today would bring their quality of lives tomorrow to the levels they could see in Western Europe. However, politicians in Western Europe have traditionally tried to sell structural reforms with a very different message: ‘Things can’t be as good as they used to be until now, so you the people should accept the pain that we inflict upon you today in order to avoid worse pain in the future.’ No wonder that most of their citizens have preferred the uncertain pain tomorrow to a certain beating today. In this context, Mr. Macron’s positive message can work because now there seems to be a critical mass of the French who have come to realize that their current situation is actually not great and that both France and they could do much better.

Second, beside political determination Mr. Macron needs a small team of highly skilled and committed reformers who are ready to start implementing concrete measures immediately. With every passing week, they will all face a declining likelihood that the reforms will be properly implemented and start bearing fruits well before the next elections. A key reasons why Slovakia’s reforms worked was the fact that the prime minister, Mikulas Dzurinda empowered a trusted right hand man and deputy, Ivan Miklos, to manage the reform process with a strong vision, vigor, and bravery. Mr. Macron will need an Ivan as well.

Third, marketing is key. In Slovakia, we turned one of our reforms, flat tax, into a flagship marketing vehicle. It worked extremely well with our main economic target group, foreign investors. Even though it was not as critically important in and of itself, it attracted their attention, distinguished us from the rest of Central and Eastern Europe, and became a symbol of a highly attractive business environment. It boosted business confidence and triggered a massive inflow of foreign direct investment that in turn became one of the key drivers of economic growth that surpassed 10% per year. Mr. Macron needs to create such a strong story and symbol as well. In his case, it could be measures that would position France as the epicenter of the new wave of transformational start ups coming from research and development in areas such as energy, environment, transportation, space, biotech, robotics and AI. This is the forefront where the digital giants like Google and Apple are moving today.

Finally, every successful reformer also needs to be lucky, not least by creating his own luck. In our case, we were being helped by Slovakia’s accession into the EU, which further boosted economic activity. Similarly, thanks to our previous policies focused on opening up service markets, we were just experiencing an inflow of large Western retailers who kept pushing down prices, particularly of key staples. This mitigated the negative effect of some reforms on various parts of our society. In this regard, Mr. Macron’s luck includes the fact that he is starting at the time when Eurozone is experiencing the fastest growth and highest employment in over a decade. He can further extend this luck by starting to deliver specific reforms straight away. He should focus on small and symbolic ones that create very few losers, like the measures targeting the forefront of technology.

So far, Mr. Macron has overwhelmingly created his own luck by being bold, innovative and positive. If he continues like this and stays clear of avoidable mistakes, not only can he extend his luck but he will make lucky the rest of France and Europe as well. By doing so, he could also become the great leader who did the right things and got reelected afterwards.

Martin Bruncko is an adviser to the European Commissioner and a former innovation minister in the government of Slovakia

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